Kerkorian pulling out of Ford, taking huge loss

Like the other U.S. automakers, Ford has struggled in recent years to right-size itself and return to profitability by shuttering plants and dramatically downsizing its U.S. work force. Kerkorian’s June investments had been seen as vote confidence in those efforts.

But in the months since, high gas prices, a slumping overall economy, low consumer confidence and the tightening of credit markets have taken their toll on the automaker and the industry overall.

Ford shares are down 63 percent since the tender offer was announced. On Oct. 10, they hit $1.88, marking their lowest level since April 19, 1983, according to the Center for Research in Security Prices at the University of Chicago.

Pete Hastings, senior analyst with Memphis, Tenn.-based Morgan Keegan & Co., said Kerkorian’s move reflects the “abysmal conditions” in the overall auto industry, citing the steep drop in U.S. vehicle sales this year and expectations that things will not improve in 2009.

“He saw what he thought were depressed prices in the industry and thought there would be a turnaround, but was surprised at the severity of the U.S. recession,” Hastings said.

The energy sector, one of the areas where Tracinda said it plans to move its money, is a much less risky place to invest than the automotive industry, Hastings said.

Bragman said that while Kerkorian’s underlying motivations may not be related to Ford, the automaker could lose an important financial safety net if Kerkorian were to completely pull out.

“Kerkorian was always seen as a kind of savior for Ford,” Bragman said. “His pockets were seen as a last source of financing, and if this is him saying ‘I can’t help you any more,’ Ford may have lost an exit strategy.”

Ford spokesman Mark Truby said the company did not know about Kerkorian’s plans until after Tracinda’s regulatory filing.

“We remain confident in and focused on our plan to transform Ford into a lean global enterprise delivering profitable growth for all,” he said.

Kerkorian has a mixed track record with the other U.S. automakers. He made an unsuccessful $4.5 billion cash offer for Chrysler last year and pushed for General Motors Corp. to form an alliance with Nissan Motor Co. and Renault SA in 2006. He acquired nearly 10 percent of GM and won a seat on the Detroit automaker’s board for Jerome York, one of his advisers.

But Kerkorian sold his stake in GM after the proposed alliance was scrapped following three months of negotiations.

Tracinda also was Chrysler’s largest shareholder at the time of its 1998 combination with Daimler-Benz. He sued the combined company in 2000, claiming Daimler engineered a takeover of Chrysler, then cheated him out of billions by casting the deal as a merger of equals. A federal judge rejected his claim.

Also in msnbc.com business Answer Desk: The risks of investing extensively in gold Your Career: The repercussions of expressing your faith Interactive: 10 cars we’re looking forward to in 2010 ‘Reaching out’ and the other worst buzzwords of the year   Video: Existing home sales make an unexpected jump

MORE FROM AUTOS

Autos Section Front

Ford offers retirement, buyouts to 41,000 Ten cars to look forward to in 2010 GM names Microsoft executive as new CFO Hyundai Motor announces China truck venture Spyker extends deadline on offer to buy Saab Hyundai unveils new Sonata GM names new head of Buick, GMC brands New small cars might struggle in market UAW leaders nominate Bob King to lead union CEO: GM to repay $6.7 billion in U.S. loans Autos Section Front   Add Autos headlines to your news reader: